- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 4. Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
- Subject 2. Costs and Benefits Associated with Owning the Underlying
CFA Practice Question
Dividends lower the price of ______.
II. call options
III. put options
I. stocks
II. call options
III. put options
Correct Answer: I and II
Put options gain value as the price of stock goes down.
User Contributed Comments 4
| User | Comment |
|---|---|
| guest | To my understanding dividends increase the price of stocks... Paying off a dividend is a good sign for a company, it means that the company is doing well... as a result the demand for stocks will go up which means that as more people want to buy stocks the price of that stock will then go up. Wouldn't it be fair to say that if dividends are paid out, the price of stocks will go up, price of calls will go up and the price of puts will also go up. Now when we look at the value of these options, it is a different story. The value of a call will go down, the right to buy at a higher price is not a good thing... thus the value goes down as we are paying more. The values of a put goes up as the right to sell will be at a higher price... thus we are selling for more. Please anyone let me know your thoughts |
| Kiniry | Mathematically, a dividend reduces the price of a stock by the amount of that dividend. What investors think of that dividend is a different discussion altogether. Some would prefer capital gains to dividends for tax purposes. |
| khalifa92 | guests... |
| ashish100 | Dividends are cash outflows so company has less money to do fun things. Guest will learn in fra maybe |